I think Microsoft should have stayed with their original plan. It's totally legal.

No, it was not totally legal as long as the EU said it wasn't.

But would even the EU appeals court rubberstamp an EC decree saying that Microsoft not shipping a browser was illegal?

The question is not if it was illegal. The question is if it was sufficient to restore competition in the market. And it wasn't. If you rob a bank and get caught, do you think that YOU will be able to dictate what your own punishment should be? That's just laughable.

So the EU is in effect freezing the market into these top 5 browsers.

Which is much better than freezing it to just one. Also, this will make the barrier to enter the market for new browsers much lower.

The ballot scheme deprives the OEM of making deals with the browser companies.

No it doesn't, but your Google comment raises an interesting problem. Google has a dominant position in the search market. They can offer revenue sharing with a 50/50 split, while Opera, Mozilla and others could only achieve a 33/33/33 split (browser vendor/OEM/search provider).